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2022 (6) TMI 802 - AT - Income TaxExemption u/s 10(2A) being share of profit received from LLP of which the appellant was a partner - Proportionate claim of exempt income - higher variable contribution - transactions of the assessee with the Adiman Finance Consultants Ltd. LLP. exemption u/s 10(2A) made by the assessee for the 95% share of profit from Adiman Finance Consultants Ltd. LLP denied - Revenue doubted the arrangement made by the assessee with the other company by way of which the assessee contributed merely 2.78% of the capital but the assessee was able to get 95% of the share of profit and ld. D/R alleged it to be a mere arrangement of funds in the guise of tax evasion - HELD THAT - As we find that the assessee holds a post-graduate degree from Indian Institute of Management, Kolkata and is an expert in the field of investments in shares securities and has an experience of 20 years working in global and Indian financial institutions. Since the assessee was having an expertise in this field the other person i.e. Enam Shares Securities Pvt. Ltd. approached and together formed an LLP namely Adiman Finance Consultants Ltd. LLP vide agreement dated 01.03.2012. In terms of LLP agreement dated 01.03.2012 fixed capital was Rs.50,000/- which was contributed in the ratio of 95 5 by the assessee and Enam Shares Securities Pvt. Ltd. In the very same agreement it was, further, agreed that any additional capital if any required shall be contributed by Enam Shares Securities Pvt. Ltd. only. Thereafter variable contribution i.e. contribution other than the fixed capital was made and the maximum of such investment was made by Enam Shares Securities Pvt. Ltd. So much so that the total of capital and variable contribution as on 31.03.2016 which was at Rs.9,25,81,498/-, assessee s contribution was only 2.78% i.e. 25,78,223/- and that of Enam Shares Securities Pvt. Ltd. at 97.22% i.e. Rs.9,00,03,275/-. LLP is regularly assessed to tax and return for AY 2016-17 was e-filed on 29.07.2016. The copy of assessment order u/s 143(3) of the Act for AY 2014-15 framed on 02.02.2016 also forms part of the record and no adverse view has been taken by the ld. AO with regard to the capital contribution and profit-sharing ratio of the assessee and Enam Shares Securities Pvt. Ltd. It is not in dispute that the Adiman Finance Consultants Ltd. LLP disclosed its profit after tax at Rs.2,04,30,723/-. The same is duly forming part of audited financial statements of the Adiman Finance Consultants Ltd. LLP. The assessee has only received the share of profit from LLP at the agreed rate of 95% of the profits. Since the identity of the LLP is not in dispute, it s constitution, agreement, sharing ratio, capital contribution ratio and the audited financial statements are not in dispute before us, we find no justification in the finding of the ld. AO disallowing the proportionate claim of exempt income of Rs.1,98,32,856/-. Decisions referred and relied on by ld. D/R merely deals with preponderance of human probabilities which in our view are not applicable to the current state of facts which speaks loud and clear that the assessee being an expert in the field of management and investments joined hands with the company having funds and together after forming the LLP, they are carrying on business activity regularly since AY 2012-13. The present appeal is in AY 2016-17 of which books of accounts are maintained and duly audited and the assessee has received its legitimate share of profit as per the terms of LLP agreement. - Decided against revenue.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Deletion of addition of salary income treated as share profit exempted under section 10(2A) of the IT Act, 1961. 3. Applicability of various Supreme Court decisions cited by the Assessing Officer (AO). Detailed Analysis: 1. Condonation of Delay: The appeal filed by the Revenue was delayed by 59 days due to COVID-19 restrictions. The Tribunal referred to the Hon'ble Supreme Court's Miscellaneous Application No. 21 of 2022, which excluded the limitation period from 15.03.2020 to 28.02.2022 for filing appeals. Given this, the delay was condoned, and the appeal was admitted for adjudication. 2. Deletion of Addition of Salary Income: The core issue was whether the assessee's share of profit from the LLP, Adiman Finance Consultants Ltd., was exempt under section 10(2A) of the IT Act, 1961, or should be treated as salary income. The AO had disallowed Rs. 1,98,32,856/- of the share of profit, treating it as salary income, on the grounds that the assessee contributed only 2.78% of the total capital but received 95% of the profits. The AO argued that this arrangement was a device for tax evasion, citing the assessee's previous employment with Enam Holdings Pvt. Ltd. and the substantial contribution by Enam Shares & Securities Pvt. Ltd. The CIT(A) overturned the AO's decision, stating that the assessee received the share of profit as per the LLP agreement, which did not mandate profit-sharing in proportion to capital contribution. The CIT(A) emphasized that the LLP was genuine, regularly assessed to tax, and the profit-sharing ratio was agreed upon by competent parties. The Tribunal upheld this view, noting that the assessee's expertise in investments justified the profit-sharing arrangement. It also highlighted that the AO's partial acceptance of the LLP's genuineness contradicted his stance on the profit-sharing ratio. 3. Applicability of Supreme Court Decisions: The AO cited several Supreme Court decisions (McDowell & Co. Ltd. vs. CIT, Union of India & Ors. vs. Playworld Electronics (P) Ltd., Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd., and CIT vs. Durga Prasad More) to support his position. However, the Tribunal found these references inapplicable to the current case, as the facts clearly demonstrated a legitimate business arrangement between the assessee and Enam Shares & Securities Pvt. Ltd. The Tribunal concluded that the AO's reliance on these decisions was misplaced, given the clear and consistent documentation of the LLP's activities and profit-sharing agreement. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the exemption under section 10(2A) for the assessee's share of profit from the LLP. The Tribunal found no inconsistency in the CIT(A)'s findings and upheld the legitimacy of the profit-sharing arrangement as per the LLP agreement.
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